RULE 11 CASE AGAINST BANCO LATINO, THE VENEZUELAN GOVERMENT AND ITS ATTORNEYS - REPORT AND RECOMMENDATION AND ORDER IN FAVOR OF GUSTAVO GOMEZ LOPEZ. (ENGLISH)
Report, recommendation favorable to Gustavo Gómez López. United States District Court – Southern District of Florida – Case No. 95-1300-Civ-Highsmith/Garber
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 95-1300-CIV-HIGHSMITH/GARBER
BANCO LATINO INTERNATIONAL
Plaintiff
V GUSTAVO GÓMEZ LÓPEZ et al..
Defendant.
REPORT AND RECOMMENDATION AND ORDER
THIS MATTER is before the Court on Defendant’s Motion for Sanctions (DE# 828) and Plaintiff’s Cross-Motion for Sanctions pursuant to an Order of Reference entered by the Honorable Shelby Highsmith. The Court held a hearing on this matter on June 26, 2000.
I Background.
This action arose from the collapse of the Venezuelan banking industry and the subsequent decision by Venezuelan banking authorities to seize control over Banco Latino, S.A.C.A. (“BLCA”). Banco Latino International (“BLI”) sought to impose liability for BLCA’s failure upon some of its former directors and officers including Gustavo Gomez Lopez.
BLI is a financial institution located in Miami, Florida and organized under the laws of the United States. BLI, which opened in 1983, was formerly owned by two foreign banks: BLCA owned 76.3% and Banco Latino, N.V. (“BLNV”) owned the remaining 23.7%. Following the collapse of its parent company BLCA, in January of 1994, BLI filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Southern District of Florida. BLI claims that the three closely related financial institutions (BLI, BLCA and BLNV) fraudulently maintained an “appearance” of financial stability through the use of “triangular placements”. Allegedly, these placements concealed cash transfers among the three banks in order to deceive federal regulators. Plaintiff’s original Complaint was filed on June 19, 1995. Mr. Gomez Lopez was a Director of BLI for nine months. Prior to that he was a top official at BLCA where he served as Vice President from 1988 to September 1992. Alternate Director from March 1986 to March 1990 and Director from March 1990 to March 1991. He became President beginning in 1992.
On April 20, 2000 Judge Highsmith granted Defendant’s Motion for Summary Judgment, stating that BLI’s claims for 1) Violation of the federal Rico statute, 18 U.S.C. 1964; 2) conspiracy to violate the federal Rico Statute; 3) fraud; 4) breach of the fiduciary duty of care; 5) breach of the fiduciary duty of loyalty; 6) common law civil conspiracy; and 7) constructive fraud all failed because BLI was unable to “demonstrate that it was in any way defrauded or betrayed by defendants. “Banco Latino V Gustavo A Gomez Lopez, et al. No. 95-1300-CIV-Highsmith (S.D.Fla. Apr. 20, 2000) (Order Granting Defendant’s Motion for Summary Judgment). That Order is otherwise incorporated herein by reference.
II Discussion
On March 15, 2000, Mr. Gomez Lopez filed the pending Motion for Sanctions pursuant to Fed. R. Civ. P. 11, 28 U.S.C. 1927, and this Court’s inherent authority. BLI thereafter filed a Cross-Motion for Sanctions seeking costs.
A.-Defendant’s Motion for Sanctions Is Granted and Plaintiff’s Cross Motion for Sanctions Is Denied Pursuant to Fed. R.Civ. P. 11
Mr. Gomez Lopez argues that the claims brought against him were initiated in bad faith and fueled by political pressure from the Venezuelan Government. He further contest these claims are factually deficient since he never knew of any banking misappropriations nor directed any cover up. Additionally, Mr. Gomez Lopez stresses that the claims by BLI are meritless under federal banking law for two reasons: 1) he did not knowingly attempt to defraud BLI, and 2)any knowledge that BLI had of illegal activity should be imputed against BLI.
On the other hand, BLI maintains that it made a thorough investigation, and that its suit was not a product of “bad faith”. BLI argues that Mr. Gomez Lopez must have known about illegal placements, by virtue of his position and other “evidence” as well. Contrary to Mr. Gomez Lopez’s contentions, BLI contends that the triangular placements scheme was not conducted for its benefit, but to benefit other parties at its expense. Finally, BLI requests const incurred for having to respond to Mr. Gomez Lopez “frivolous” Motion for Sanctions.
Rule 11 provides that, by presenting a pleading or motion to a court, an attorney is certifying that to the best of his/her knowledge, information, and belief, formed after an inquiry reasonable under the circumstances:
1) It is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation;
2) The claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification or reversal of existing law or the establishment of new law.
3) The allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery.
Fed. R. Civ. P. 11. Litigants must “stop and think” before making legal or factual contentions Parties to a suit are susceptible to potential sanctions for insisting upon a position after it is no longer tenable. Fed. R. Civ. P. 11 advisory committee notes. However, immunity from sanctions exists if the litigants withdraw or correct themselves after a potential violation is brought to their attention. If a sanction is to be imposed fro a violation, it will be limited to what is sufficient to deter repetition of such conduct or like conduct by those similarly situated. See generally, Cooter & Gell v Hartmarx Corp., 496 U.S. 384 (1990)
Although the Court rejects Mr. Gomez Lopez’s argument regarding the political motivations behind BLI’s suit, the Court finds that sanctions are appropriate for three reasons: 1) BLI failed to conduct the adequate factual and legal inquiry required by Rule 11; 2) no factual basis existed from which BLI could base its claim; and 3) no legal basis existed to support BLI’s claim against Mr. Gomez Lopez.
BLI and its counsel failed to talk to many key witnesses with first-hand knowledge of the issues at hand including but not limited to: Roger Urbina, interventor of BLCA and its affiliates and the individual who authorized BLI to file for bankruptcy; Carlos Ruiz Gimenez, former president of BLI prior to Mr. Gomez Lopez, and representatives of the third-party institutions through which the alleged “triangular placements’ were made. Therefore, the Court finds that BLI failed to conduct an adequate inquiry in this case. Further, although Mr. Gomez Lopez was the former Director of BLI and a top official with BLCA (during which time he attended BLI board meetings), this alone is not factual evidence of any wrongdoing. BLI’s other evidence is speculative at best as to any knowledge Mr. Gomez Lopez may have had. Additionally, BLI has failed to provide evidence as to Mr. Gomez Lopez’s intent to defraud BLI as the law requires. In light of the inadequate investigation that was conducted in their case, BLI could not possibly provide a legal basis for its claims. As discussed in Judge Highsmith’s Summary Judgment Order, all seven of BLI;s claims failed because BLI could not demonstrate that it was, in any way, defrauded by Defendant. Banco Latino v Gustavo Gomez Lopez, et al. No. 95-1300-CIV-Highsmith (S.D.Fla. Apr. 20,2000) (Order granting Defendant’s Motion for Summary Judgment at 13). Additional, the available evidence clearly suggests that both BLI’s federal and state law claims were not targeted at BLI but at federal Regulators.
Further, Judge Highsmith’s Summary Judgment Order criticizes both the validity of BLI’s claims as well as the manner in which those claims were brought. For example, the Order states in relevant part:
At this juncture BLI is left asserting, in a blanket fashion, an array of vague fraud based claims against a hodgepodge of its former officer, directors and advisors … none of these claims can withstand scrutiny.
Id. at 19, 20. In light of the foregoing discussion, the Court concludes that BLI has a duty to withdraw its claim rather than continue to further and ungrounded law suit. Thus, sanctions under Rule 11 are warranted.
B.-Defendant’s Motion for Sanctions is Granted Pursuant to 28 U.S.C. 1927
For the reasons previously discussed and for continuing to plead factually unsupported claims, it is clear that BLI and its counsel have engaged in unreasonable and vexatious actions that have served to multiply these proceedings. The Court additionally finds that BLI willfully abused the judicial process in violation of 28 U.S.C. 1927 Section 1927 provides:
Any attorney or other person admitted to conduct cases in any court in the United States or any territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess cost, expenses, and attorney’s fees reasonably incurred because of such conduct.
Courts usually make a finding of wilful bad faith before imposing such sanctions. See Bonfiglio v Nugent, 986 F. 2d 1391 (11 Cir. 1993); Amev v. Gulf Abstract & Title, Inc. 758 F. 2d 1486 (11 Cir. 1985); in re Maurice, 69 F. 3d 830 (7 Cir. 1995). The Court finds that the actions outlined hereinabove rise to the level of bad faith and are sanctionable under 28 U.S.C. 1927.
The Court choose not to address whether BLI’s conduct is sanctionable pursuant to the Court’s inherent power since it is adequately able to rely on other authority. See Roadway Express Inc. V Piper, 447 U.S. 752, 764 (1980)
Based upon the foregoing, it is hereby
RESPECTULLY RECOMMENDED that Defendant’s request for sanctions be GRANTED, and that Plaintiff’s Cross-Motion for sanctions be DENIED.
It is furthermore ORDERED that the parties shall direct further argument to the Court detailing suggested amounts for such sanctions. Defendant shall submit a memorandum in that regard on or before August 8, 2000, with a courtesy copy directed to the undersigned’s chambers. Plaintiff shall respond on or before August 25, 2000, and Defendant shall reply on or before September 4, 2000. Thereafter, the Court shall supplement the present Report and Recommendation with a suggested sanction. The Court shall also rule on Defendant’s pending Motion to Tax Cost shortly.
The parties have ten (10) days from the date of this Report and Recommendation to file written objections, if any, with the Honorable Shelby Highsmith, United States District Judge. See. 28 U.S.C. 636 (1991). Failure to file timely objections may bar the parties from attacking on appeal the factual findings contained herein LoConte y Dugger, 847 F 2d 745, 750 (11 Cir.) cert. Denied, 488 US 958 (1988)
RESPECTFULLY SUBMITTED at the United States Courthouse, Miami, Fl. This 14 of July, 2000
BARRY L. GARBER
UNITED STATES MAGISTRATE JUDGE
Copies supplied to:
U.S. District Judge Shelby Highsmith
Counsel of record.